What is an In­come State­ment?

Asian Journal - - Tax & Technology - Dave Sran Dave Sran, BBA Hons, CPA, CGA, Staff Ac­coun­tant, Gil­mour Knotts Char­tered Ac­coun­tant.

Facts: An In­come State­ment is the part of the fi­nan­cial state­ments pre­pared for own­ers, in­vestors, and bankers that shows rev­enues and ex­penses for a de­fined pe­riod of time, usu­ally the fis­cal year. It is a sum­mary of the fi­nan­cial per­for­mance of the cor­po­ra­tion dur­ing the re­port­ing pe­riod. Dis­cus­sion: In­come State­ments may also be called a Profit and Loss State­ment, Earn­ings State­ment or State­ment of In­come. The pur­pose of the In­come State­ment is to show stake­hold­ers whether the cor­po­ra­tion had a net profit or net loss dur­ing a pe­riod of time such as: monthly, quar­terly, or yearly. The In­come State­ment can be ei­ther Sin­gle Step or Multi-Step. Sin­gle Step state­ments are very ba­sic with a to­tal for rev­enue, a to­tal for ex­penses and the net dif­fer­ence be­ing the net in­come be­fore taxes. Multi-step In­come State­ments are the most com­mon type that are in­cluded in the fi­nan­cial state­ments for a cor­po­ra­tion as they dis­close more mean­ing­ful in­for­ma­tion. Multi-step state­ments start with all rev­enues or sales from a cor­po­ra­tion that are con­sid­ered ac­tive rev­enues. All cost of goods sold (such as ma­te­ri­als and pur­chases) are then to­taled and de­ducted which re­sults in gross in­come or gross profit. The com­pany’s op­er­at­ing ex­penses (such as rent, of­fice and auto ex­penses) are then listed un­der a sep­a­rate sec­tion and de­ducted from gross profit which re­sults in in­come from op­er­a­tions. Then pas­sive in­come such as in­vest­ment in­come or div­i­dend in­come from other cor­po­ra­tions are cat­e­go­rized in a sep­a­rate sec­tion and added to in­come from op­er­a­tions to ar­rive at net in­come be­fore taxes. Af­ter taxes are recorded and de­ducted from this amount, the net in­come af­ter tax is added to re­tained earn­ings. In­come State­ments help own­ers, in­vestors and lenders view past per­for­mance, pre­dict fu­ture per­for­mance, and ca­pa­bil­ity of gen­er­at­ing cash flow. It is im­por­tant to note that the rev­enue and ex­penses should be recorded dur­ing the pe­riod in which they are in­curred, not when the cash is re­ceived (the ac­crual ba­sis). The match­ing of rev­enue to ex­penses is a fi­nan­cial ac­count­ing term known as the match­ing prin­ci­ple. As a re­sult, you will tend to see ac­cru­als recorded at year end (on the Bal­ance Sheet-see FAQ #151) to cap­ture those rev­enue and ex­penses re­ported on the In­come State­ment. For ex­am­ple, ac­counts re­ceiv­able are a com­mon ac­crual as the com­pany has pro­vided sales or ser­vices dur­ing the cur­rent pe­riod, but the cash is not re­ceived un­til af­ter the cur­rent pe­riod. Rec­om­men­da­tion: If you would like more in­for­ma­tion on an In­come State­ment or in­ter­pret­ing your fi­nan­cial state­ments, please con­tact Gil­mour Knotts Char­tered Ac­coun­tants.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.